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Portfolio > Mutual Funds

Finding a Custodian That Fits, Part 1: Interactive Brokers

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The other day, as I was going through my desk, I found a postcard mailer I had received a year earlier from Interactive Brokers (IAB). I was intrigued enough to give them a call and ask a few questions. Currently, for my custodian I use Trade PMR (TPMR) and have since February 2009. For the most part I have been pleased with TPMR’s service and platform in general. However, as any RIA will understand, there’s always one or two things you’d like to see your custodian change. In short, there is no perfect custodian.

Therefore, the main issue is to select a custodian that best fits your business. There are many issues to consider such as fee structure, technology, service, etc. In this post, I’ll provide you with an overview on what I discovered about IAB. 

Interactive Brokers

I spent about 30 minutes on the phone during my initial conversation with IB. I asked questions and they had the right answers. Hence, I decided to schedule a follow-up webinar to see their platform and ask additional questions. Interactive Brokers (IBKR) has some of the lowest costs around. For example, you can buy an ETF in multiple accounts the transaction fee (about $15) will be divided across all accounts. Hence, if you bought an ETF in 20 accounts, each account would pay about $0.75. That’s less than one dollar! Needless to say, I was quite excited about that. But there’s more to consider. 

IAB will not accept accounts under $5,000. They also have an “inactivity fee” for accounts that have no trades during a month. However, this fee doesn’t apply to accounts greater than $100,000. The problem is that many RIAs, myself included, have accounts which range from a few thousand dollars to over a million.

One last thought on IAB. Their list of available mutual funds is very, very small. In fact, from what I could tell, they have no institutional shares, only shares which would not have a transaction fee on other platforms. IAB is excellent for accounts above $100,000 and those who do not use mutual funds. That said, they do have good technology. For example, you can type in a mutual fund ticker symbol, and their software will provide you with the ETF which most closely matches the mutual fund. The ETF will typically have a lower expense ratio. 


For the right advisor, especially one who trades frequently, IAB has an excellent platform. However, for me, there are too many issues, making it an unsuitable fit for the time being. Next, week, we’ll discuss some other RIA custodians and what they have to offer. 

Thanks for reading and have a great week!


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